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Midwest aluminum premium down again

Keywords: Tags  Midwest premium, aluminum, London Metal Exchange, LME, warehouse rules, Michael Cowden


CHICAGO — Midwest aluminum premiums slipped again this week on continued skittishness about the potential impact of new London Metal Exchange warehousing rules.

AMM’s spot P1020 aluminum premium moved to 10 to 11 cents per pound Sept. 4 from 10.5 to 11 cents previously.

"It’s like a long winter storm. The snow keeps coming," one producer source said.

Some market sources worry that premiums will dip into single digits, but others say warehouse financing deals continue to provide support. "Everyone believes it’s going to go lower. But the contango is still there, so the financing deals are still able to be done off-warehouse—and that’s somewhat of a floor," one buyer said. "I don’t know where that floor is, but it’s not going to be 5 (cents per pound)."

The LME’s primary aluminum cash contract ended the official session at $1,754 per tonne (79.6 cents per pound) Sept. 5, down 2.4 percent from $1,798 per tonne (81.6 cents per pound) Aug. 29 and 17.4 percent below a high of $2,123 per tonne (96.3 cents per pound) Feb. 15.

"People are just starting to figure out what they are going to buy for next year," one trader said.

Market trends might not become clear until after upcoming industry events and, in particular, once LME rules are finalized, several industry sources said.

Under new exchange proposals, warehouse companies would be required to deliver out more metal than they draw in at storage locations with long load-out queues ( amm.com, July 1). A decision is expected in October, with changes scheduled to take effect in April 2014 ( amm.com, Aug. 6).

"Hopefully (activity) starts picking up later this month. But I’m not going to hold my breath too much for it," a second trader said. "Consumers are running JIT (just in time), and so they haven’t really been in the market. We need some direction."

Bearish sentiment continues to characterize the market, with some customers on the fence as they wait for aluminum prices and premiums to bottom out before making big buys, market sources said. But others stressed that downstream markets, especially automotive and aerospace, remain strong despite primary aluminum sector woes.

Other wild cards are the widely expected U.S. military strikes against Syria, and the possibility of a wider regional conflagration that could impact important shipping lanes and drive up energy costs. This could hurt aluminum producers grappling with low prices and who are likely unable to contend with any steep cost increases, a third trader said.

"If the U.S. bombs Syria, all bets are off. ... This pot has been simmering, and at some point it could overflow," he said.


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